It’s no secret that Amazon is no longer ‘just’ the world’s biggest retailer. Its ‘other’ business – digital advertising – is having a seismic impact on the advertising industry, so much so that is now a threat to the traditional digital advertising duopoly, Facebook and Google. This week, eMarketer released a report claiming that Amazon is ‘chipping away’ at the very core of Google’s business – search.
Amazon’s star has been on the ascendant for a significant period of time, but 2019 has truly been a stellar year. Revenue for its ad business climbed by 37% to $3 billion in the second quarter of 2019, while back in February eMarketer predicted that Amazon would claim 8.8% of US digital adspend this year, up from 6.8% in 2018. This is impressive in itself, but even more so when you consider that Google’s share was predicted to drop to 37.2%, down from 38.2% in 2018, while Facebook would only increase theirs by 0.3%.
This was the backdrop for the latest eMarketer report about Amazon’s search share. The US search market is set to grow by 17% this year, to a huge $55.17 billion. While Google still of course owns the lion’s share of the market, with 73.1% ($40.3bn), eMarketer anticipates that that will fall to 70.5% by 2021. Amazon, on the other hand, is expected to have grown its share of the market to 12.9% by the end of 2019, and to 15.9% in 2021. Microsoft has now been relegated to third place in the search market, with a 6.5% share.
So what is behind Amazon’s increasing prominence in digital advertising? The key reason is its understanding of consumers’ purchasing behaviours. It has a treasure trove of data about buying habits which is of course very valuable for advertisers, as they can reach customers right at the time that they intend to make a purchase. Amazon’s data even allows advertisers to understand when a buyer might want to repurchase a product, so that they can be targeted at the right time, with less wastage.
Consumers’ research behaviour is changing as well: they now increasingly use Amazon as a research resource rather than just a purchasing platform, and use broader search terms such as ‘gift’ or ‘makeup’, offering ample opportunities for brands to reach them. And it’s not just brands that sell directly on Amazon that can benefit; advertisers that sell products and services that can’t be bought on Amazon, such as cars or insurance, can use the retailer’s extensive customer data to understand who might be interested in buying their products. Finally, Amazon has very high conversion rates, particularly for products sold on their platform: 20-30%, versus 1-10% on Facebook, for example, where ads are seen as more intrusive and trust is an issue.
Amazon has wasted no time in harnessing these advantages over its competitors. Last year, it simplified the branding for its advertising products, creating Amazon Advertising. This includes sponsored ads which work in a similar way to Google search, allowing advertisers to bid for search terms, with the highest bidders more likely to appear in ad listings. Display ads are available programmatically for both Amazon and third-party sites using the Amazon DSP, which allows advertisers to see easily how well their media spend translates into sales.
In 2018, Amazon acquired Sizmek’s adserving and dynamic creative units; the dynamic creative allows for more tailored ads which incorporate data such as location or shopper behaviour, while the ad server side helps advertisers to place ads and measure effectiveness, helping Amazon to better compete with Google. Overall, these acquisitions have helped Amazon improve the functionality that had been lacking in comparison to its two major competitors in the digital advertising space.
While Google will no doubt be alarmed that Amazon is encroaching on its search dominance, there is something of a silver lining. Both organisations are being examined by regulators at the Department of Justice and the Federal Trade Commission – Google because of its search stranglehold and Amazon for using its e-commerce marketplace to promote its own brands over those of rivals. While these investigations continue, it won’t hurt either of them to have increased perception of competition.
As Amazon increases its functionality and collects and organises evermore customer data, it will become an increasingly important player in the digital advertising sector and undoubtedly an ever more worthy recipient of valuable ad dollars. Advertisers – even those that don’t sell via the platform itself – should seriously consider Amazon’s advertising solutions for three reasons: lower pricing thanks to increased competition in the search space; remarkable conversion rates; and Amazon’s wealth of rich data from its sales funnel.